Australia’s Woodside buys 25% of Israel’s largest gas well, the Leviathan

 

Australian energy firm to acquire 25% ownership of Israeli reservoir in $2.71 billion deal.

 

 
Amid months of uncertainty and lack of transparency surrounding Leviathan gas reservoir arrangements, Australian hydrocarbon firm Woodside is expected to sign a $2.71 billion agreement to acquire a 25-percent share of the field on Thursday evening.
Leviathan gas field - Albatross - 09012012

Leviathan holds 453 billion cu.m. of gas [file] Photo: Courtesy of Albatross

The agreement will build upon a memorandum of understanding signed with the reservoir’s partners on February 7, which provided a framework for final negotiations, following months of uncertainty and anticipation surrounding the agreement. An original agreement in principle occurred among the parties in December 2012, which had called for Woodside to acquire a larger, 30% stake of the reservoir.

With ample hydrocarbon supplies for decades of domestic use and export, Leviathan – located about 130 km. west of Haifa – is estimated to contain about 535 billion cubic meters (18.9 trillion cubic feet) of natural gas and 34.1 million barrels of liquid condensate.

Ahead of Woodside’s probable entrance as a stakeholder, Noble Energy holds 39.66% of the Leviathan field, Delek Group subsidiaries Delek Drilling and Avner Oil Exploration each have 22.67% and Ratio Oil Exploration owns 15%.

Assuming the final agreement is concluded on Thursday evening, Woodside will hold 25%, Noble Energy will own 30%, Delek Drilling and Avner will each own 16.93% and Ratio will hold 11.12%.

Prior to the signing, the Energy and Water Ministry on Thursday afternoon released the 30-year lease terms for the rights to licensing blocks 349 (Rachel) and 350 (Amit), which make up the Leviathan reservoir. Each of the two lease areas, called “Leviathan South” and “Leviathan North” extend about 250 square kilometers.

Among other things, the lease determines provisions regarding the schedules for field development, for construction, for operations of facilities, reporting, testing and insurance.

Specifically, the partners will be tasked with establishing a production system and a natural gas pipeline that stretches from Leviathan to Israel’s coast, enabling the supply of approximately 1.4 million cubic meters per hour, or about 12 billion cubic meters per year, the lease says. The lease particularly emphasizes that “export will not be enabled in a way that damages the ability of the lease holders to supply and discharge at any time from the Leviathan field to the national transmission system a quantity of 1.05 million cubic meters per hour at least” – or, the equivalent of 9.2 billion cubic meters per year.

“Exports of natural gas will only be possible after the completion of a production and transmission system to [Israel’s] shore,” the lease stresses.

With the necessity to ensure a supply of 9.2 billion cubic meters annually to Israel, the developers will be left with only approximately 6 to 8 billion cubic meters of gas to export each year – likely forcing them to choose one anchor customer, Globes reported.

The ability of the leaseholders to export gas will be subject to the approval of the Petroleum Commissioner as well as the Energy, Water and National Infrastructures Minister, according to the lease. In any event, export will not be possible until the implementation of a development plan for supplying 540 billion cubic meters of gas from all of the country’s reservoirs to the local market.

Meanwhile, should a natural gas shortage occurs in Israel, the leaseholders will need to grant priority to the needs of the domestic market, the lease says.

In addition, all export contracts will need to include a provision clarifying that export supplies can only begin once a transmission system to Israel’s coast is complete.

All systems that are constructed solely for export purposes – excluding Floating Liquefied Natural Gas (F-LNG) facilities, which are separate entities – will need to be able to be connected to the national transmission system as well, to provide backup in case of emergency or shortage in Israel, the lease mandates.

The leaseholders must submit a development plan to the Petroleum Commissioner within six months upon the receipt of the lease, according to the document’s terms. As part of this task, the leaseholders will also need to submit plans for monitoring the marine environment relevant to the Leviathan field’s development.  In consultation with the Environmental Protection Ministry, the leaseholders will also need to prepare a document analyzing the potential environmental impacts of their projects, as well as steps for area rehabilitation upon the completion of their work, the lease says.

An additionally important element of the lease terms is the requirement of the leaseholders to training and employ Israelis in the emerging energy sectors. The lease thereby tasks them with submitting a detailed plan with courses of action relevant to this goal within six months. These plans must include goals, timetables and milestones for employing Israelis in the development, installation and operation of the Leviathan production system, the lease says.

Upon signing the lease, the leaseholders will need to submit guarantees in the amount of $100 million, to ensure compliance with the terms and conditions of the lease. As is legally required, the leaseholders will also need to pay the state the necessary royalties and provide all material necessary to conduct thorough and efficient audits, the lease adds.

The Energy and Water Ministry stressed that the leases were awarded as part of the ministry’s efforts “to promote energy in Israel” and “to secure the needs of the economy.”

“When formulating the conditions of the lease, the ministry saw before it the economic benefit, the future needs and the transformation into a strong market that is strong, stable and independent,” said Energy, Water and National Infrastructures Ministry direct-general Orna Hozman-Bechor. “The new market is now developing under us, and we are building it carefully, with responsibility and with a comprehensive and all-inclusive vision. Following the granting of the lease, many additional consumers will be able to connect to natural gas and will reduce their energy costs significantly. Also accompanying this will be the advancement, training and employment of Israeli workers in the sector.”

Also prior to the signing of the agreement and before the publication of the lease terms, MK Shelly Yachimovich (Labor) on Thursday morning slammed the government and the partners for not allowing members of the Knesset or the general public to know the exact terms of the final lease agreement until it was signed and delivered.

“It is no coincidence that today, at the same moment, in which the three companies celebrate the agreement among them, the state conveys to them a lease on some 30 years of gas, the Treasury grants them tax breaks and the Antitrust Commissioner allows them to be a monopoly sponsored by the law,” Yachimovich said. “This is not appropriate for a Western country, but for a banana republic in which capital and control are combined in a most vitriolic and shameless manner.”

Calling the situation a “national tragedy,” she expressed that Israel’s citizens “are being looted by private companies, as if we were a third world country.”

“These companies won the absolute cooperation of the prime minister, the energy and finance ministers and the regulators, who were supposed to preserve the interests of the public,” Yachimovich said.

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